Rush University Medical Center v. Michael Leavitt

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 07-3648 & 08-2227
RUSH UNIVERSITY MEDICAL CENTER,
Plaintiff-Appellant,
v.
MICHAEL O. LEAVITT, Secretary of
Health and Human Services,
Defendant-Appellee.
____________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 06 C 1550—Joan B. Gottschall, Judge.
____________
ARGUED APRIL 16, 2008—DECIDED AUGUST 1, 2008
____________
Before EASTERBROOK, Chief Judge, and WOOD and
WILLIAMS, Circuit Judges.
EASTERBROOK, Chief Judge. Rush University Medical
Center believes that it has not received all of the Medi-
care payments to which it is entitled for fiscal year 1991.
After an unduly prolonged administrative process, the
Secretary of Health and Human Services resolved numer-
ous contested issues against the Medical Center. On
judicial review under 42 U.S.C. §1395oo(f)(1), the district
2 Nos. 07-3648 & 08-2227
court made a decision mostly favorable to the Secretary’s
position. 2007 U.S. Dist. LEXIS 66244 (N.D. Ill. Sept. 4, 2007).
Unfortunately, it is impossible to tell from the judg-
ment who won what. It reads:
IT IS HEREBY ORDERED AND ADJUDGED that
Plaintiff, Rush University Medical Center’s motion
for summary judgment is granted in part and
denied in part; the Defendant, Michael Leavitt’s
motion for summary judgment is granted in part
and denied in part. Civil case terminated.
Unless the plaintiff loses outright, a judgment must
provide the relief to which the winner is entitled. That
motions have been granted is beside the point. See, e.g.,
Waypoint Aviation Services Inc. v. Sandel Avionics, Inc., 469
F.3d 1071 (7th Cir. 2006); Foremost Sales Promotions, Inc. v.
Director, BATF, 812 F.2d 1044 (7th Cir. 1987); Reytblatt v.
Denton, 812 F.2d 1042 (7th Cir. 1987).
Despite Fed. R. Civ. P. 58(b)(2), which requires district
judges to review and approve any judgment other than
one implementing a jury verdict, awarding a sum certain,
or denying all relief, this judgment was drafted and
entered by a deputy clerk. For more than 20 years this
court has been urging the district judges of this circuit to
enter proper judgments. Otis v. Chicago, 29 F.3d 1159 (7th
Cir. 1994) (en banc), and Bethune Plaza, Inc. v. Lumpkin, 863
F.2d 525 (7th Cir. 1988), are two examples among many.
See also, e.g., Properties Unlimited, Inc. v. Cendant Mobility
Services, 384 F.3d 917 (7th Cir. 2004); Buck v. U.S. Digital
Communications, Inc., 141 F.3d 710 (7th Cir. 1998).
Some district judges turn each decision over to a
deputy clerk, who either fails to enter a judgment (many
a case peters out with a “minute order” but nothing
Nos. 07-3648 & 08-2227 3
resembling a Rule 58 judgment) or uses the last paragraph
of the opinion as a template for drafting and entering
a judgment without judicial input. When the disposition
is simple, a clerk’s interpretation is apt to be satisfactory.
But when the disposition is complex, the clerk (who is
not a lawyer) is at sea and disinclined to venture an
independent interpretation. Then we get things like
this document, which says that the judge has granted one
or more motions (“in part”!) but does not even try to
specify what matters: the consequence of the judicial
ruling. Nothing but review by a judge, as Rule 58(b)(2)
demands, will yield a satisfactory judgment when the
outcome is complicated.
Sometimes it is easy to infer the disposition, and then
the appeal may proceed despite technical shortcomings.
See Bankers Trust Co. v. Mallis, 435 U.S. 381 (1978). But
nothing is particularly easy about this litigation, which
involves multiple issues. In the course of addressing
more than a dozen disputes, the district judge con-
cluded that the controversy could not be resolved fully
without a remand to the agency. The agency had declined
to compensate the Medical Center for the costs of resident
physicians participating in some fellowship programs,
which the agency thought had not been approved by the
appropriate bodies. Concerned that some of the programs
might have been approved, but that the Medical Center
had been confused by the documentation requirements,
the court directed the agency to give the Medical Center
another opportunity to “complete Worksheet D-2” for
some participants in some of the programs. Which partici-
pants and programs, and what are the agency’s marching
orders on remand? The document did not say.
At this court’s urging, the parties returned to the district
court and obtained a more informative judgment. A new
4 Nos. 07-3648 & 08-2227
appeal has been filed. The second judgment, which the
parties drafted for the district judge’s signature, is itself
barely adequate. It says that the agency must allow the
Medical Center to submit documentation for “the costs
of services furnished by residents in up to thirteen non-
approved fellowship programs”. More detail would
have been appropriate, but this vagueness does not make
the judgment non-final, though it would prevent any
motion to hold the agency in contempt if it does not
understand its duties the same way the Medical Center
does.
The remand creates a second problem with appellate
jurisdiction. Remand usually signifies that a decision
is not final. Who wins, and how much, cannot be known
until activity on remand has been finished. But the Su-
preme Court has held that a remand to an agency is final
when the proceedings may end without further litiga-
tion—for, if the private claimant prevails, the agency
cannot obtain judicial review of its own decision (even
when that decision has been compelled by a judicial
decision with which the agency disagrees). Unless the
issues can be addressed in court while the agency deals
with the remand, they might never be open to appellate
review. That makes the district judge’s decision ef-
fectively final. See Forney v. Apfel, 524 U.S. 266 (1998);
Sullivan v. Finkelstein, 496 U.S. 617 (1990). Forney and
Finkelstein arose from the Social Security program, but in
Edgewater Foundation v. Thompson, 350 F.3d 694 (7th Cir.
2003), we concluded that they are equally applicable to
medical providers’ suits seeking reimbursement under
the Medicare program. The sort of remand ordered by
the district judge is one that might well conclude with-
out a return to court, so the decision is appealable. Al-
Nos. 07-3648 & 08-2227 5
though a decision that is “final” only because the agency
may be unable to obtain review after its own action on
remand might be thought to justify immediate review
only at the agency’s behest, Forney concluded that any
decision final from the agency’s perspective also is final
from the private litigant’s, and that principle controls here.
The first cluster of appellate issues arises from 42 U.S.C.
§1395ww(d)(5)(F)(i)(I), which provides that hospitals
serving a “significantly disproportionate number of low-
income patients” receive additional Medicare payments.
The statute and regulations treat persons eligible for
care under the Medicaid program as “low-income patients”
for this purpose. At the outset of this “disproportionate
share” program, it was unclear how persons covered by
states’ general-assistance programs would be classified.
Some hospitals (and some of the Medicare program’s fiscal
intermediaries) equated general-assistance patients to
Medicaid patients; others did not. A regulation issued in
December 1999, and effective January 1, 2000, provides
that general-assistance patients do not count among the
“low-income patients” for the purpose of this program.
(We call it a regulation, though it is actually Program
Memorandum A-99-62. The parties treat this document as
if it had the status of a regulation; we do likewise with-
out deciding whether that is correct.)
Periods before calendar year 2000 are covered by a
grandfather clause (which the parties call the “Hold
Harmless Rule”). Hospitals that classified general-assis-
tance patients with Medicaid patients in cost reports
filed before October 15, 1999, or took administrative
appeals based on that theory, are entitled to the benefit of
classification. Others are not. The manual instructs fiscal
intermediaries:
6 Nos. 07-3648 & 08-2227
Where, for cost reporting periods beginning be-
fore January 1, 2000, a hospital filed a jurisdiction-
ally proper appeal to the PRRB [Provider Reim-
bursement Review Board] on the issue of the
exclusion of these types of days from the Medicare
DSH formula on or after October 15, 1999, reopen
the settled cost report at issue and revise the
Medicare DSH [“disproportionate share hospital”]
payment to reflect the inclusion of these types of
days as Medicaid days, but only if the hospital
appealed, before October 15, 1999, the denial of
payment for the days in question in previous cost
reporting periods . . . . Do not reopen a cost report
and revise the Medicare DSH payment to reflect
the inclusion of these types of days as Medicaid
days if, on or after October 15, 1999, a hospital
added the issue of the exclusion of these types of
days to a jurisdictionally proper appeal already
pending before PRRB on other Medicare DSH
issues or other unrelated issues. You are to continue
paying the Medicare DSH adjustment reflecting the
inclusion of general assistance or other State-only
health program, charity care, Medicaid DSH,
and/or waiver or demonstration population days
for all open cost reports for cost reporting periods
beginning before January 1, 2000, to any hospital
that, before October 15, 1999, filed a jurisdictionally
proper appeal to the PRRB specifically for this
issue on previously settled cost reports.
Emphasis in original. The idea is that any hospital that
added a claim based on general-assistance patients must
have been trying to take advantage of the grandfather
treatment, which was first announced on October 15, 1999.
Nos. 07-3648 & 08-2227 7
Only claims that predate the announcement of grandfather-
clause treatment are allowed. On that date the Medical
Center’s appeal concerning its 1991 cost report was
before the Provider Reimbursement Review Board (a
component of the Department of Health and Human
Services that reviews fiscal intermediaries’ decisions). The
Board, and later the Secretary, concluded that the
Medical Center’s papers on file on October 15, 1999, did not
propose to treat general-assistance patients as
Medicaid patients for the 1991 fiscal year, so the Medical
Center could not take advantage of the grandfather
clause. The district court held that the Secretary’s deci-
sion is supported by substantial evidence.
The Medical Center equated general-assistance to
Medicaid patients in its cost reports for 1989 and 1990
and received grandfather-clause treatment for those
years. The current dispute concerns the cost report for 1991.
The Medical Center did not treat general-assistance days
the same as Medicaid days in that year’s report or propose
this treatment at any other time before October 15, 1999. In
arguing that it should nonetheless receive extra compensa-
tion on account of its general-assistance patients in 1991,
the Medical Center relies on a position paper filed in April
1998, challenging the fiscal intermediary’s failure to
“include all inpatient hospital days as directed by HCFA
Ruling 97-2”. (HCFA is an acronym for the Health Care
Financing Administration, which administers the Medicare
program for the Secretary. In 2001 it was renamed the
Centers for Medicare and Medicaid Services.)
How was the Secretary to see in this language—a blanket
demand to be paid everything that was due—any glim-
mer that the Medical Center proposed to equate general-
assistance and Medicaid patients for the purpose of the
8 Nos. 07-3648 & 08-2227
disproportionate-share program? The problem is not the
omission of magic words but the fact that there were
no synonyms for the right words, or even similes or
metaphors. Indeed, a demand to be paid whatever is
due misses the point that general-assistance patients
differ from Medicaid patients for disproportionate-
share payments. To receive grandfather treatment, the
Medical Center had to assert before October 15, 1999, a
particular approach that was not its due.
The parties have debated at length the inferences that
might be drawn from the differences between the cost
reports for 1989 and 1990 and the report for 1991. The
exchange does not get us anywhere. The question is not
what inferences we judges might draw, but whether
substantial evidence (including the Secretary’s inferences)
supports the agency’s conclusion that the Medical Center’s
elliptical “pay what you owe” language does not demon-
strate a timely equation of general-assistance patients in
the disproportionate-share claim. The Medical Center
may be right to say that the Secretary could have ruled
in its favor by giving the demand a generous reading.
Agencies are not required to be generous with public
funds, however—especially when the claim is not sub-
stantively correct and is supported only by a grandfather
clause. An agency is entitled to guard against reading
general language, with the benefit of hindsight, at tax-
payers’ expense. The Secretary’s approach is supported
by substantial evidence and not arbitrary or capricious.
A second group of issues concerns the Medical Center’s
entitlement to payments that underwrite some of the
expense of conducting a graduate medical education
program. Few details of this compensation system, see
42 U.S.C. §1395ww(a)(4), (d)(5), are material. What do
Nos. 07-3648 & 08-2227 9
matter are the requirements that interns and residents
who are not yet licensed by the state be working toward
certification in certain specialties and be performing
medical services in the hospital on a census day (for
this fiscal year, September 4, 1990).
A hospital can claim reimbursement based on the
number of interns in a teaching program “approved by
the Council on Medical Education of the American
Medical Association” (42 U.S.C. §1395x(b)(6)) and residents
in an “approved medical residency training program” (42
U.S.C. §1395ww(h)(2)). The latter phrase means “a resi-
dency or other postgraduate medical training program
participation in which may be counted toward certifica-
tion in a specialty or subspecialty” (§1395ww(h)(5)(A)).
The Secretary issued a regulation allowing any resident
training “toward certification in a specialty listed in the
Directory of Residency Training Programs published by the
American Medical Association” to be counted, whether
or not any group had approved the program. 42 C.F.R.
(1990 ed.) §412.118(f)(1)(B). (This directory is today known
as the Graduate Medical Education Directory or “Green
Book”. See 42 C.F.R. §412.105.) Arguably giving teaching
hospitals a break beyond the statute’s requirements, the
regulation allows a resident to be counted even if the
specialty or subspecialty has not received this formal
recognition. That is possible when the program has been
“approved by one of the national organizations listed in
§405.522(a) of this chapter.” 42 C.F.R. (1990 ed.) §413.86(b).
During fiscal year 1991 the Medical Center had residents
in neuroradiology, spine surgery, and forensic psychiatry.
None of these fields was recognized during fiscal 1991 in
the Directory of Residency Training Programs as a medical
specialty or subspecialty. None of the residents’ programs
10 Nos. 07-3648 & 08-2227
had been approved, before the end of the fiscal year, by
“one of the national organizations listed in §405.522(a)
of this chapter.” But the Medical Center says that three
residents should be counted anyway, because one pro-
gram was approved only a month after the fiscal year’s
end, and the others had been approved by organizations
not on the approved list (and were eventually approved
by one of the listed organizations). Perhaps the Secretary
could make exceptions on grounds such as these, but it is
not arbitrary to enforce the rules as written. Medicare is
a complex program; it would not be administrable if
the Secretary had to bend or break rules whenever a
judge thinks that something outside the rule is “close
enough” to a rule’s spirit. Arguments of this sort are
addressed to the Secretary’s discretion, not to a judge’s
sense of proportionality. Regulations are compromises
and lack “spirits”—or so the Secretary may conclude
without acting capriciously.
That the list of approving organizations had been
amended “only” nine months before the start of the 1991
fiscal year does not change the regulation’s effective date.
Every rule has a beginning, and it is always possible to
argue that the date should be postponed so that more
conduct can be covered by older norms. The Administra-
tive Procedure Act, and not a sense of rough justice,
specifies how much notice an agency must give before
changing a rule. The Medical Center does not say that
this rule was amended with inadequate notice, so the
Secretary was entitled to enforce it. (That the Secretary
had authority to adopt this amplifying regulation cannot
be doubted.)
Now we come to the census date. The Secretary con-
cluded that three particular residents, though enrolled in
Nos. 07-3648 & 08-2227 11
approved programs (or working toward listed specialties),
were not receiving training in the Hospital on September 4,
1990. Actually what the Secretary concluded is that the
Medical Center, which has the burden of both production
and persuasion, had not demonstrated that these three
residents were in the appropriate places at the required
time. The Medical Center says that the Secretary did not
prove that the residents were not in the Hospital, but that’s
not the Secretary’s burden. A person claiming entitle-
ment to a benefit is the one who must prove that claim by
a preponderance of the evidence. See Director, OWCP v.
Greenwich Collieries, 512 U.S. 267 (1994).
The idea behind pinning down what residents were
doing on a single day is that, with large numbers of
persons involved, the assignments for any given day will
closely mirror how many people the hospital assigns to
particular tasks on average throughout the year—but it is
much easier to determine where physicians were, and what
doing, on a single day than on every day of the year.
Unfortunately, it is not always possible to ascertain loca-
tions and tasks on even a single day, as this case shows. It
isn’t enough to be assigned to a hospital, or even in the
hospital; it is essential to be in an eligible part of a hospital.
Research areas, outpatient clinics, psychiatry units, and
rehabilitation units are excluded. 42 C.F.R. (1990 ed.)
§412.118(f). To know who was where, and when, the
agency wants to see each hospital’s formal rotation sched-
ules for the census day.
The Medical Center did not submit rotation schedules
for two of the residents in question. It says that these two
were assigned to maternal/fetal medicine and so necessar-
ily would have been in eligible areas on September 4, 1990.
Yet the documentation that the Medical Center sub-
12 Nos. 07-3648 & 08-2227
mitted did not show that these residents were assigned to
work at all that day. Where they would have worked, had
they worked, is beside the point. And the Secretary
was entitled to doubt the adequacy of the evidence that
the Medical Center eventually submitted, in the form of a
letter from an administrator who joined the staff after the
end of 1990. A belatedly submitted rotation schedule is
one thing, a letter not based on the writer’s personal
knowledge quite another. That two residents had a spe-
cialty of maternal/fetal medicine is not enough to show
that they were seeing patients rather than doing research
on a particular day. A court would not have admitted
this letter into evidence (it was hearsay and not a
regularly kept business record); the Secretary might
have relied on it but was not required to.
The third resident was shown on a rotation schedule as
present in the hospital on the census day. The Medical
Center says that this should have been enough. But the
rotation schedule did not show what part of the hospital
this resident was supposed to be working in, and as not
all parts are eligible it did not carry the Medical Center’s
burden. The agency also suspected that this particular
resident was actually working at a place other than the
one on his schedule—a place ineligible for this special
reimbursement—on September 4, 1990. We need not
decide whether the suspicion was supported by sub-
stantial evidence; it is enough to say that the schedule’s
vagueness about location entitled the Secretary to reject
the claim.
Finally, we come to a dispute about the Medical Center’s
capital costs. The value of the hospital itself goes into the
compensation formula, as does the cost of interest on debt
incurred to construct facilities that will be included in the
Nos. 07-3648 & 08-2227 13
rate base. But the costs of other facilities—for example,
hotels in which friends or relatives of patients may stay
while visiting—do not go into the rate base, nor does
interest paid on debt incurred to finance the construc-
tion of such facilities.
During 1987 the Medical Center developed a hotel, the
“Inn at University Village”, near the hospital. The Inn
includes a restaurant and conference facilities as well
as 114 rooms. Contemporaneously the Medical Center
issued $10 million in bonds. The bonds are secured by
the hospital and other medical facilities, not by the Inn,
and the Medical Center contends that interest on these
bonds should be treated as part of the cost of operating
the hospital rather than the cost of building the Inn.
The Medical Center could not directly charge interest to
the federal tab even if the debt had been incurred to run the
hospital. But interest expense can be subtracted from
investment income. The Inn operated at a loss, but Rush
University has other producing investments, whose profits
reduce Medicare reimbursement. The Medical Center
wants to deduct the interest from these investment profits
and so increase federal reimbursement. That is proper,
however, only if the interest relates to the hospital rather
than the hotel.
The Secretary concluded that it did not, for three princi-
pal reasons: The bonds were issued just when funds
were needed to build the Inn; the capital raised by issuing
the bonds ($10 million) is roughly equal to the Inn’s
construction cost ($9.8 million); and the Medical Center’s
own accountant attributed the interest to the Inn.
Although the Medical Center responds that this account-
ing treatment has since been “corrected,” that the bonds’
14 Nos. 07-3648 & 08-2227
indenture does not mention the Inn, and that the pro-
ceeds were deposited into the hospital’s general operating
account, the fact remains that money is fungible. It is six
of one and half a dozen of the other whether the Med-
ical Center incurs $10 million in debt to build a hotel, or
instead incurs $10 million in debt to buy new MRI imagers
and then uses $10 million out of its freed-up operating
budget to build the hotel. In either event the $10 million,
and the interest expense, could have been avoided had
the hotel not been built. The Medical Center must cover
the cost one way or the other, so even if a sheaf of resolu-
tions by the Medical Center’s board says that the money
“really” will be devoted to diagnostic machines, or new
carpets, or a renovated operating theater, it cannot be
arbitrary or capricious for the Secretary to conclude that the
hotel is the marginal outlay and should bear the interest
expense. That the Medical Center’s accountants originally
had the same, sensible, understanding cinches matters.
AFFIRMED
USCA-02-C-0072—8-1-08